Updated: Nov 30, 2018
You’ve spent years studying anatomy, months cramming for the MCAT, countless hours in med school, and what feels like forever preparing to build your own practice. Incredibly hard work, but perhaps not the kind of experience that’s given you a background in business finance. And for medical professionals looking to fund their own practice, it can sometimes feel as though you need an MBA just to get your office up and running.
Thankfully, it doesn’t take years to figure out how you can fund your medical practice. There are a myriad of options and requirements, for sure, but the process itself is fairly straightforward — once you know what small business financing option works best for you.
Getting a loan to start or expand your medical practice is fairly similar to funding for other industries. Most of your potential financing options are the same, qualifications are similar, and lenders will want to see the same kinds of loan application documents for your practice as they would for other small business applicants. There are a few unique funding sources just for medical businesses, but more on that later.
Lenders like applicants who have good personal credit, a solid business plan, and proof of profitability. Even if you’re still paying off student loans, you may still qualify for a loan, so long as you have a good track record of on-time payments. Many lenders like to invest in medical practices since they’ve got strong odds of becoming profitable in a short amount of time. Just make sure that you have a comprehensive picture of your personal finances, as well as that of your practice.
The amount of work you’ll have to do to put together your loan application varies between lending options. Some loans require very little paperwork, while others may ask you for a skyscraper’s worth of documentation about your personal and professional finances. As a general rule of thumb, more paperwork tends to mean lower interest rates and more generous terms — it usually pays to do your homework.
There are many options available for you and your practice, but finding the right one comes down to your needs and timeline. If you need access to quick cash, or need an emergency capital fund, your options are going to be different than if you needed to finance a long-term project.
SBA loans are usually considered one of the best business financing options. They offer generous terms, low interest rates, and let small business owners access capital from established lenders that might not be as willing to lend to them otherwise. The SBA doesn’t give out loans; rather, it guarantees up to 85% of the value of a loan from an intermediary lender. This incentivizes banks to lend to small businesses because there’s less risk if a borrower were to default.
SBA 7(a) loans tend to be the most coveted option out there for borrowers. 7(a) loans offer flexibility, since they don’t come with limitations on how the funds need to be used. Plus, they offer low interest rates and long repayment terms, which means that you can borrow the cash you need and pay it off over a longer period of time. Bear in mind that these loans tend to be competitive, given their low rates and generous terms. You’ll need a high credit score and steady finances in order to qualify. It can also take over three months to get approved for an SBA loan, so if you need financing quickly, this option probably won’t work for you.
Operating a medical practice requires a ton of machinery. And, depending on your specialty, you might have to fork over a decent amount of cash if you decide to purchase your equipment, rather than lease it. This is where equipment financing comes in handy.
Equipment financing loans allow you to borrow up to the purchase amount of the equipment you wish to buy. You don’t need to provide any collateral upfront to get approved, since the value of the equipment you purchase serves as all the collateral the bank needs.
On the downside, depending on how quickly you pay off your loan, your equipment may be obsolete before you finish making payments. Also, though some lenders allow you to finance up to 100%, depending on your credit you may need to make a down payment on your equipment.
Term loans are the most common, straightforward option for most borrowers. They offer sums of cash in exchange for repayment, interest, and fees over a set amount of time. Some term loans are long, which provide you with a broader window to repay the money borrowed (typically taking the form of monthly payments over the course of a few months or years). Long-term loans offer lower interest rates and are generally better for most borrowers who can afford to wait for approval. Short-term loans can offer faster approval turnaround times, but generally come with higher interest rates in most cases.
Medical practitioners can access a unique variety of loan that’s designed specifically for the industry. Some lenders — typically larger, national banks — offer special loans for medical professionals (namely doctors, dentists, optometrists, and veterinarians). These loans consider the unique financial situations that most doctors have: large student loan debt, high upfront costs for supplies and equipment, and potential cash flow imbalances due to outstanding patient payments.
Depending on the lender, you might be able to pursue a loan that doesn’t require interest payments for the first six months, allows for prepayment, or doesn’t require a down payment. While sometimes tricky to qualify for, these loans can help you acquire, refinance, expand, or relocate your practice. The approval timeline is similar to that of a conventional term loan, but you’ll have the peace of mind that comes from working with a financial expert who understands what it’s like to run your own medical practice.
A business line of credit is different from the other loan varieties we’ve covered so far. In fact, they’re more akin to a business credit card than a loan. Unlike a business loan, which provides you with a lump sum of cash upon approval, a business line of credit allows you to borrow from a set amount of cash — either in full or in part during a certain amount of time.
This can be a great option for established practices that need to make periodic purchases on credit, but don’t necessarily want or need to borrow large amounts of money at once. You could save on interest payments, since you’ll only pay interest on the money you borrow. And you won’t have to go through as lengthy an approval process for a business line of credit as you would for a term loan. But it’s important to note that a business line of credit may have higher interest rates than other options and may require you to put up personal collateral to secure your financing.
No matter how you decide to venture out and begin your own practice, you have a variety of financing options available to help you get there. Each offers its own benefits and challenges, of course, and any decision to borrow money shouldn’t be taken lightly. But you’ve worked hard to get where you are, and financing can help you take your career to the next level. Thankfully, there are a variety of options to help you along the way.
Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.